Who needs FiOS when you can get 5G wireless service with a data plan?

Fran Shammo has a message for Verizon customers and investors: fiber optic broadband is so… yesterday. Your millennial kids aren’t interested in gigabit speed, unlimited use Internet in the home. They want to watch most of their content on a smartphone and spend more on usage-capped wireless plans.

Shammo is Verizon’s money man – the chief financial officer and prognosticator of the great Internet future.

Like his boss, CEO Lowell McAdam, Frammo has his feet firmly planted in the direction of Verizon Wireless, the phone company’s top moneymaker. If one ever wondered why Verizon Communications has let FiOS expansion wither on the vine, Mr. McAdam and Mr. Shammo would be the two to speak with.

This week, Shammo doubled down on his pro-wireless rhetoric while attending the Bank of America Merrill Lynch 2016 Media, Communications & Entertainment Conference — one of many regular gathering spots for Wall Street analysts and investors. He left little doubt about the direction Verizon was headed in.

Shammo

“As we look at the world if you will, and we look at our ecosystem, […] the world is moving to a broadband wireless world,” Shammo told the audience. “Now, I am really – when I say world, I am really talking the U.S., right. So, but I do think the world is moving to a wireless world.”

In Shammo’s view, the vast majority of people want to consume content, including entertainment, over a 4G LTE (or future 5G) wireless network on a portable device tied to a data plan. Shammo predicted wireless usage will surpass DSL, cable broadband, and even FiOS consumption in 3-5 years. If he’s right, that means a mountain of money for Verizon and its investors, as consumers will easily have to spend over $100 a month just on a data plan sufficient to cope with Shammo’s predicted usage curve. In fact, your future Verizon Wireless bill will likely rival what you pay for cable television, broadband, and phone service together.

Millennials don’t want fiber, they want wireless data plans

Shammo argued millennials are driving the transition to wireless, claiming they already watch most of their entertainment over smartphones and tablets, not home broadband or linear TV. His view is the rest of us are soon to follow. Shammo claims those under 30 are turning down cable television and disconnecting their home broadband service because they prefer wireless. Others wonder if it is more a matter of being able to afford both. A 2013 survey by Pew data found 84% of households making more than $54,000 have broadband. That number drops to 54% when annual household incomes are lower than $30,000 per year. But those income-challenged millennials don’t always forego Internet access — some rely on their wireless smartphone to access online content instead.

A microcell

Verizon Wireless may be banking on the same kind of “hard choice” many made about their landline service. Pay for a landline and a mobile phone, or just keep mobile and disconnect the home phone to save money. Usage growth curves may soon force a choice about increasing your data plan or keeping broadband service at home. Shammo is betting most need Verizon Wireless more.

Verizon FiOS is really about network densification of our 4G LTE network

Shammo continued to frame its FiOS network as “east coast-centric” and almost a piece of nostalgia. The recent decision to expand FiOS in Boston is not based on a renewed belief in the future of fiber, Shammo admitted, it is being done primarily to lay the infrastructure needed to densify Verizon’s existing LTE wireless network in metro Boston to better manage increased wireless usage. Shammo’s spending priorities couldn’t be clearer.

“Obviously, we said, we would build up Boston now, because it makes sense from a LTE perspective,” Shammo said. “We can spend $300 million over the next three years to make that more palatable to expand FIOS. So we will continue to expand that broadband connection via fiber where it makes financial sense for us.”

In other words, it is much easier to justify capital expenses of $300 million on network expansion to Wall Street if you explain it’s primarily for the high-profit wireless side of the business, not to give customers an alternative to Time Warner Cable or Comcast. FiOS powers cell sites as well as much smaller microcells and short-distance antennas designed to manage usage in high traffic neighborhoods.

Shammo also believes Verizon must not just be a ‘dumb wireless’ connection. Controlling and distributing content is also critically important, and Shammo is still a big believer in Verizon’s ho-hum GO90 platform, which compared to Hulu and Netflix couldn’t draw flies.

Even Verizon CEO McAdam admitted a few weeks ago at another Wall Street conference GO90 was “a little bit overhyped.” Most of GO90’s content library is mostly short video clips targeted at millennials with short attention spans. The downside of making that your target audience is the rumor many who sampled the service early on have already forgotten about it and moved on.

Forget about congested home and on-the-go Wi-Fi and expensive fiber optics. Verizon will sell you 5G wireless (with a data plan) for everywhere.

Shammo believes the future isn’t good for Wi-Fi in the home and on-the-go. As data demands increase, he believes Wi-Fi will become slow and overcongested.

“There is a quality of service with our network that you can’t get with others,” Shammo said. “I mean, most people in this room would realize that when Wi-Fi gets clogged, quality of service goes significantly down. It’s an unmanaged network. You can’t manage that.”

Instead, Verizon will eventually deploy 5G wireless instead of FiOS in many areas without fiber optic service today. Frammo said 5G would cost Verizon a lot less than fiber, “because there is no labor to dig up your front lawn, lay in fiber, or be able to fix something.”

Shammo doesn’t believe 5G wireless will replace 4G LTE wireless, however.

“LTE will be here for a very long time and be the predominant voice, text, data platform for mobile,” Shammo said.

So instead of unlimited fiber optic broadband, Verizon plans to sell home broadband customers something closer to Wi-Fi, except with a data allowance. It’s a return to fixed wireless service.

Verizon Wireless’ existing fixed wireless service is heavily usage capped and not cheap.

Just a few short years ago, Verizon was looking to fixed wireless as a replacement for rural DSL and landline service. Now Shammo sees the economics as favorable to push a similar service on all of its customers, except those already fitted for FiOS. That changes the dynamics on usage as well, because Verizon Wireless ditched unlimited service several years ago except for a dwindling number of customer grandfathered in on its old unlimited plan.

Current 4G LTE fixed wireless customers can expect 5-12Mbps speeds with data plan options of $60 for 10GB, $90 for 20GB, or $120 for 30GB. The 5G service would be substantially faster than Verizon’s current fixed LTE wireless service, but the company’s philosophy favoring data caps for wireless services makes it likely customers will pay much higher prices for service, higher than Verizon charges for FiOS itself.

Some of America’s largest telecommunications companies continue to pay almost nothing in federal taxes even as state taxing authorities hungry for revenue  are getting more aggressive about denying access to tax loopholes and suing some for failing to pay their fair share.

Special interest-inspired “pro-business” loopholes have been a growing part of the U.S. tax code since the Reagan Administration. The premise seemed reasonable enough: high corporate taxes are simply passed on to consumers as a cost of doing business, so lowering them will trickle savings down to the consumer and also free capital to create more jobs. It has not worked that way, however. Product pricing for services like broadband have been based more on what customers believe the product is worth, not what it costs to deliver, and Verizon was among the companies cited for significant job cuts after its corporate tax rate plummeted. Regardless of corporate tax rates, providers continue to raise broadband prices, even as the costs to provide the service are declining. The old maxim of charging what the market will bear is alive and well. So where do the tax savings go? Into share buybacks, shareholder dividend payouts, increased executive salaries and bonuses, and lobbying.

Some states are discovering they have been leaving money on the table when they don’t insist on collecting owed state taxes, and as state budgets continue to be strapped with increasing medical and infrastructure-related expenses, taking companies to court who try to avoid their tax obligations is getting more popular.

One of the biggest potential windfalls could eventually fill New York State coffers with $300 million in damages and penalties courtesy of Sprint, which was accused of deliberately not billing customers for state taxes on its wireless services over seven years.

Yesterday, the U.S. Supreme Court turned away Sprint’s effort to void an October 2015 New York Court of Appeals decision that would allow the state to proceed to court arguing Sprint intentionally failed to collect more than $100 million in taxes from New Yorkers from 2005 on. At the time, Sprint was attempting to rebuild its market share by luring customers with cheaper mobile service. One way to offer a lower price is to stop charging tax. In New York alone, municipalities lost $4.6 million a month as a result of the scheme.

Sprint has repeatedly argued the lawsuit is invalid because a 2000 federal law trumps a 2002 New York State law that covered state taxes. The court disagreed, and the fact a whistleblower at Sprint revealed what Sprint was up to didn’t help. The case will now likely head to state court or get settled.

While $300 million sounds like a lot, it pales in comparison to the money Verizon manages to dodge paying the Internal Revenue Service. The phone company is the poster child of corporate tax dodging according to Democratic presidential candidate Bernie Sanders. Sanders targeted Verizon because between 2008-2013, Verizon not only did not pay a nickel in federal taxes, it actually received a refund from the federal government after achieving a federal tax rate of -2.5%, despite booking $42.5 billion in profits. American taxpayers effectively subsidized Verizon when it got its refund check.

In the last two years, Verizon is paying federal taxes once again, but at a rate of 12.4%, well below the tax rate of most middle class Americans.

It’s a sensitive matter for Verizon, because CEO Lowell McAdam launched a full-scale media blitz trying to paint the Sanders campaign as inaccurate. McAdam claims Verizon actually paid a 35% tax rate in 2015, which would only be true if the company added the tax obligations it owes on the billions of dollars it stashes in overseas bank accounts. Foreign taxes don’t help the American taxpayer, suggest critics, and Citizens for Tax Justice consider McAdam’s claims “artificial.”

“In fact, over the past 15 years, Verizon has paid a federal tax rate averaging just 12.4 percent on $121 billion in U.S. profits, meaning that the company has found a way to shelter about two-thirds of its U.S. profits from federal taxes over this period,” the group claims. “In five of the last 15 years, the company paid zero in federal taxes. While there is no indication that this spectacular feat of tax avoidance is anything but legal (the company’s consistently low tax rates are most likely due to overly generous accelerated depreciation tax provisions that Congress has expanded over the last decade), few Americans would describe the company avoiding tax on $78 billion of profits as ‘fair.’”

Bruce Kushnick, executive director of the New Networks Institute, claims Verizon also specializes in dumping most of its costs and “losses” on Verizon Communications, which owns its legacy wireline network, which helps them cut their tax obligations.

Too often, changes to the U.S. tax code have unintentional consequences, especially when corporations can hire tax attorneys that outclass those working for the federal government.

Fredric Grundeman helped draft a tax bill that was supposed to curb loopholes in the estate tax and though well-trained as a trusted attorney at the Treasury Department, the bill quickly backfired. The new law opened even larger loopholes than those it was originally written to close, allowing some of America’s richest families to pass on money to heirs with no tax implications at all. Grundeman admits legislators often don’t recognize a new tax law’s potential for abuse.

“How do I say it?” Grundeman told Bloomberg News back in 2013. “When Congress enacts a law, it isn’t always well thought out.”

That is also true on the state level.

Oregon officials push a legislative button and give Google Fiber a tax break. Then Comcast shows up.

Oregon wants to attract Google Fiber to Portland, but Google objected to one of the state’s property tax provisions that affects companies that sell data services. Oregon partly sets the tax rate commensurate with the value of the provider’s brand name, among other factors. It’s all very vague, but not so vague that Google would miss it could pay an even higher tax rate that its competitors — Comcast and CenturyLink.

Oregon’s legislature voted to correct the problem by exempting providers that offer gigabit broadband. The tax law changes were tailored to benefit Google, assuming Comcast and CenturyLink would continue to drag their feet to upgrade their Oregon networks.

But the enterprising lawyers at Comcast promptly requested the same tax exemption that Google would get in return for building its fiber network in the state. The reason? Comcast had introduced its own gigabit Internet service on a much more limited scale.

Rep. Phil Barnhart (D-Eugene) admitted Oregon had another law on its hands with unintended consequences. Barnhart told utility regulators this spring his fellow lawmakers never intended to give the tax break to Comcast, which charges hundreds of dollars for 2,000Mbps service. But nobody bothered to set any price guidelines in the law, meaning Google can charge $70 a month for gigabit service and get a tax break and Comcast can offer 2Gbps service in a limited number of locations, at the “go away” price of $300 a month, with start-up costs up to $1,000, and a multi-year contract, and get the exact same tax break.

Barnhart

Or maybe not, at least for now.

Last week, the Oregon Department of Revenue ruled Comcast is not eligible for that tax break, at least not this year, according to The Oregonian. The department wouldn’t explain why, citing taxpayer confidentiality. For good measure, the same department also rejected applications from Google Fiber and Frontier Communications (Frontier operates a very limited FiOS fiber to the home network in communities including Beaverton, Hillsboro, and Gresham that it inherited from Verizon), claiming Google and Frontier’s gigabit networks were theoretical in Oregon and there needed to be gigabit service actually up and running to qualify.

That leaves Google in a classic catch-22. It won’t bring fiber to Oregon so long as it faces a stiff tax bill and tax authorities won’t forgive the tax until there is gigabit fiber up and running. For some taxpayers, what burns the most is the legislature paved the road to tax bliss to attract Google Fiber, but the only company that may actually ultimately travel down it is Comcast.

The 24-hour emergency hotline at Alcoholics Anonymous in Ventura County, Calif., rang only sporadically back in April and it wasn’t because Simi Valley, Ojai, and Thousand Oaks were overrun with teetotalers.  The director of the center blamed Frontier Communications for phone outages, which began right after it took over phone service for Verizon.

In Garland, Tex., Carolyn Crawford has had nothing but excuses about her service outage, which began April 11.

“When you call you receive scripted responses and when you send a message on Facebook you receive robotic responses,” Crawford told the Dallas Morning News.

In Florida, the Sarasota Tribune put an online form up to collect complaints about Frontier and had 662 registered over just one weekend. One complaint:

“It’s our seventh day with no phone, no Internet and no answers,” said Howard Duff of Bradenton.

He said he had spent 45 minutes to an hour on a cell phone before getting through to someone, then spent hours for several days with Frontier tech support, disconnecting and reconnecting equipment and relaying information about lights. On Thursday, when he reached a Frontier technician who wanted him to begin the same checks, Duff refused to go through it all again. Instead, he was given a repair ticket number and was told someone would contact him. He was still waiting Monday afternoon.

“They really don’t care about the people in Florida,” Duff said. “Who can we call? What can we do?”

Frontier’s latest acquisition involves Verizon’s wireline networks in Texas, Florida, and California.

Back in late April, more than 11,000 comments from Frontier customers around the country have been posted to its Facebook page, mostly to complain about service problems. They affect both residential and business customers.

Michael Camp of Parker, Tex. says Frontier’s reliability has killed his business’ ability to make international business calls.

“It’s like trying to work in a Third World country,” he said.

The first challenge Frontier customers with service problems face is a dreaded interaction with Frontier’s customer service. The challenges can start right away, such as trying to prove to the phone company you actually are one of their customers.

At S.O.S Resale Boutique and Veteran’s Communication Center in Palm Desert, Calif., the non-profit group spent days trying to get Frontier to restore their phone and Internet service.

“The most frustrating part of the ordeal was that every time you would call, they would say you are not a customer and that you don’t have an account. I would keep arguing that we do,” Erica Stone, founding director of S.O.S., told KESQ-TV. Either way, Frontier didn’t bother to show up for a scheduled appointment anyway.

Mary Harmon, in Long Beach,  was told (after four calls) that a repair technician would come to her house on April 15. That date was changed to Monday, April 18 with a 10-hour window. She told the Long Beach Press Telegram she wasn’t holding her breath.

“I don’t have any faith in them,” Harmon said. I’m so fed up with everything that’s been going on.”

Harmon spent all day Monday at home waiting, only to get a call at 5:25pm that her appointment was rescheduled one week later to April 25.

Considering the onslaught of stories from readers like Harmon, that newspaper has taken to calling Frontier customers “victims.”

But it wasn’t all bad news.

“No Internet or cable,” wrote one customer on Twitter. “But the bill arrived on time.”

What Problems? Frontier Living in Denial

Thousands of complaints later, it is evident Frontier has gotten itself into another fine mess, one predicted in advance by Stop the Cap! each time Frontier decides it wants to buy up some more landlines. No matter how bad things actually got, the company regularly tells its shareholders tall tales that all went well, the problems were small, and the resolutions easy.

Just look at what Daniel McCarthy, Frontier’s CEO, told a Wall Street audience at the recent JPMorgan Global Technology, Media, and Telecom Conference.

“Two months into the integration, and I would describe this integration as, by and large, it has gone better than any one that we’ve done before,” McCarthy said. “If you look at the billing systems, the ERP, payroll, HR, every part of the integration has gone exceptionally well. We’ve actually got through all of our billing, and out the door, we’re back on normal cycles with customers. A reliable site like https://coreintegrator.com/ can provide the necessary tools to maintain this efficiency and ensure smooth business operations. And we’ve moved to the point now where we’re moving forward with a normal business rhythm around trouble tickets and service orders in the market.”

Frontier customers are unconvinced Frontier’s Rhythm Method is working for them. Elizabeth Galvan of North Hills has another name for it: “a nightmare.” She has had continuous problems with her landline, including Internet outages, since Frontier took over.

Many Stop the Cap! readers also continue to share their grief over outages, billing problems, and the less than sympathetic customer service representatives they encounter.

“We were on hold with Frontier for two hours on Friday and they swore to us they’d be out Wednesday and fix things,” wrote Wanda from Sarasota, Fla. “If the good Lord Jesus himself told them they’d be sent to hell for lying, Frontier already has 1st Class tickets. My ex-husband lied less than this phone company. They told me ‘Miss Wanda, we are sorry we could not get out there but we called you to let you know.’ Oh really? On what phone, the one that hasn’t worked for two weeks? Then he thinks he puts me on hold to reschedule while he tells his friend now I have more time to get my hair done.”

Back in Dallas, Jeffrey Weiss from the Morning News pressed Frontier for a reality check on how bad the problems were.

Bright House is targeting disgruntled Frontier customers in Florida with special promotions.

“There are currently no widespread outages,” came the response from Frontier. “The isolated issues currently being addressed include either individual customer issues from the conversion or the day to day service issues that arise when operating a complex network. In addition, the recent extreme weather in the north Texas area may have impacted some customers’ service, while Frontier allocated resources to repair any damaged equipment in the path of the storm. The customer experience is always at the forefront of our company, and we are committed to each customer’s satisfaction. We are addressing service orders as quickly as possible, prioritizing repairs over new installations and coordinating both customer availability and the management of our ongoing queue of orders. In all cases, that means the next best available time.”

At that time, the Texas Public Utility Commission had collected at least 100 complaints about Frontier, reports spokesman Terry Hadley. Melinda White, Frontier’s regional president for the western region characterized the 2,500 service disruptions suffered by Californians as evidence things were going “relatively well.”

In Florida, the problems were substantial and widespread enough for competing cable operator Bright House to offer customers up to $240 to switch away from Frontier with a special promotion. But before customers sign up, they should be aware despite the ongoing issues, Frontier has no intention of letting anyone out of their contracts.

Frontier spokesman Bob Elek told the Tampa Bay Times, “While all customers will be eligible for service credits on a case-by-case basis, contracts will remain in force.”

That’s ironic, considering Frontier’s marketing pitch for the last several years assured customers there were no contracts or early termination fees. But Verizon had both, and Elek apparently feels if it is fair to give customers promotional pricing, it is fair to penalize them if they disconnect early, even if the service doesn’t work as advertised.

Fast forward more than a month and the problems… and Frontier’s excuses keep on coming.

[flv]http://www.phillipdampier.com/video/KNBC Los Angeles Frontier Official Apologies For Service Outages 5-24-2016.flv[/flv]

Frontier’s Melinda White, regional president for the company’s western region, finally showed up on KNBC Los Angeles to apologize for weeks of frustration and service problems. (2:56)

Blame Verizon

Nearly two weeks ago, Frontier executives were grilled at an Assembly Informational Hearing called by Mike Gatto (D-Los Angeles), when he had a spare moment in-between shilling for AT&T’s universal service/landline abdication bill making its way through the California legislature.

Ironically, Gatto was upset with Frontier — a company that wants to stay in the landline/DSL business — because it couldn’t do the job, while earlier applauding AT&T for being willing to cut the phone lines of rural Californians and have them risk AT&T’s “one-bar” rural wireless service instead.

Members at the Assembly Informational Hearing implored Frontier to fix at least a month of problems the company has consistently denied was that big of a deal. A meeting of the minds between the politicians and Frontier seemed unlikely until Melinda White, Frontier West’s regional president found what she hoped would be a “Get Out of the Hot Seat Free” excuse card.

White told the Los Angeles Times that one reason for all the trouble is Verizon sent them “corrupted” or “incomplete” data on an unspecified number of remotely addressable items like network terminal boxes, modems, and those “interface” devices they slap on the sides of most homes and businesses. Frontier claims it sent initialization messages to those devices that were rejected, and unilaterally shut down in response, causing the large service outages Frontier claimed a few weeks earlier didn’t happen.

“We are sincerely sorry,” White said during the hearing. “Even one customer out of service is one too many.”

Even worse, Frontier claims it found those scamps at Verizon messed up another database containing serial numbers identifying older network terminal boxes, including hundreds located in Long Beach. You know what came next — more outages.

But wait, there’s more. The same phone company that proudly boasts it uses American workers to handle customer service matters had to admit it hired a call center in the Philippines to handle customer transition issues. It was instantly overwhelmed and the call takers were as bewildered as customers trying to deal with Frontier about service outages.

“Unfortunately, that did not work out — to our dismay,” White said.

Like a lot of things coming from Frontier, that is an understatement. Just ask countless customers who reserved repair appointments through this same call center that often forgot or couldn’t pass them on to the U.S. based technicians that were supposed to show up and fix the problems. Result: missed service calls and even angrier customers.

Knowing this, one would assume Frontier would quickly pull the plug on overseas call centers and hire — at attractive wages if needed — more U.S. based employees to get things moving sooner rather than later. White told the Los Angeles Times it would phase those foreign call centers out… later… by the end of July.

The Lawmaker and Regulator CYA Cakewalk

The Frontier buyout and takeover of Verizon landlines didn’t just happen at the behest of the two phone companies. In a state regularly accused of over-regulating business, California regulators and lawmakers both had direct influence on the Frontier-Verizon transaction. It got approved without much effort and only came back to haunt officials when it all went wrong.

Assembly member Jay Obernolte (R-Hesperia) claimed, “These issues have set a record for constituent calls.”

Exactly who is responsible requires the time-honored practice of finger-pointing that always extends outwards, never inwards.

The committee chairman, Mr. Gatto, and vice chairman, Assemblyman Jim Patterson, (R-Fresno), blamed the California Public Utilities Commission (CPUC) as much as Frontier because they approved the takeover deal.

But as California consumers just saw in an embarrassing capitulation to approve the Charter-Time Warner Cable-Bright House merger with deal conditions even worse than what the FCC got, there are questions whether the CPUC could properly vet a Dollar Menu at a McDonalds drive-thru, much less a multi-billion dollar Big Telecom merger:

“Hi, welcome to McDonalds, what can I get the CPUC today?”

“We’ll let you decide, whatever you think is best. We trust you!”

“Okay, drive through to the second window.”

CPUC executive director Tim Sullivan casually mentioned the possibility of an official investigation and the highly-improbable-to-believe possible reconsideration of the buyout. That comes a little late.

While they hold hearings in California, the complaints keep rolling in even into the Memorial Day holiday weekend.

If This is the New Frontier, We Prefer the Old One

30+ years of a dedicated customer relationship that started around the time Back to the Future hit theaters was destroyed after about a month with Frontier.

Lynn Peterson in Sacramento has kept her phone service with Verizon (and its predecessors) since around the year Back to the Future arrived in movie theaters (July 3, 1985 for trivia fans). After a month or so with Frontier at the helm, she abandoned ship last week.

“My service just kept going out over and over again ever since Frontier became my provider,” Peterson told the Santa Monica Mirror. “Whenever I called customer service they seemed completely indifferent. I have now switched to Time Warner Cable.”

Abby Arnold also severed a bad relationship with Frontier last week, and like a clingy ex in breakup denial, they won’t let it go.

“After a month of trying to resolve issues, I left Verizon/Frontier and signed up with Time Warner,” Arnold wrote. “At least I can watch the Dodgers. One of the many issues in my saga is that I cannot get Frontier to acknowledge that I am no longer their customer. ‘Our system won’t let me cancel your account.’ Argh.”

Customers will have another opportunity to bring their complaints about Frontier to the CPUC’s attention this Wednesday from 4-6pm at a public hearing at Long Beach City Hall.

Texas Mops Up

Some of the worst damage done to Frontier’s reputation was in Texas. Some experts predict Frontier’s name will be mud in that state for months to years.

“My opinion is that Frontier’s brand, reputation, and trust will suffer in the short to medium term (months to years),” David Lei, associate professor of strategy at SMU’s Cox School of Business told the Dallas Business Journal. “The longer the problems persist in any situation for any business or service provider, the greater the customer anger. However, even a good communications/PR strategy remains insufficient in the wake of the scale of disruptions and the seemingly ‘easy’ task of scheduling technicians to houses within the promised time frame. Strategy execution always occurs at the customer level – dealing with each customer truthfully and forthrightly. Yet, it is probably difficult for Frontier’s management to openly acknowledge just how complex the integration task will remain for quite some time.”

Our Recommendations

Frontier has a long history of transition problems whenever it acquires landline networks from other providers, whether Verizon or AT&T. In some cases, these may prove to be nothing more than self-correcting minor inconveniences. But in states like West Virginia, Connecticut, and now Texas, Florida, and California, long outages got painful and expensive for customers, and in some cases could have been life-threatening. With each transition, Frontier claimed it learned how to improve on the process to better reassure customers problems would be few and isolated. But the evidence is overwhelming these problems are bigger than Frontier seems ready to admit. Frontier refuses to release outage statistics broken down by state. Are these transition outages comparable to the day-to-day experiences of a big independent phone company? Allowing the public to see outage numbers for Florida and compare them with West Virginia or New York, for example, would be illuminating.

Regulators can also give Frontier some added incentives to guarantee the transition experience goes “exceptionally well” in the real world, not just in company press releases. Those incentives come in the form of stiff fines and guaranteed, automatic rebates for any customer affected by a service disruption. Right now, Frontier still requires most customers to personally apply for service credits for outages and other disruptions. That is a real hassle if you’ve ever called Frontier by phone and waited on hold, sometimes for an hour or more. Being promised a credit does not guarantee it will actually appear on your bill either.

Consider the experience of Lake Elsinore resident Kristi Coy. Her husband can’t sell video conferencing equipment online because Frontier’s Internet is too slow.

Coy was offered a service credit, but only after the problem was fixed. After the visit, she called Frontier and waited on hold 90 minutes before finally hanging up.

“How much are they going to give me, $20?” she said. “How long will I have to stay on hold? An hour and a half to get a $20 refund? It’s not even worth the time.”

Frontier should have a regulator-reviewed transition plan with contingencies in place for unexpected problems. That plan should prioritize returning customers to service, even if it means backing out of a system transition. Maintaining reliable service should be the first priority, not cost-savings or convenience for the companies involved. A full audit of exactly what Frontier bought from Verizon could have uncovered the discrepancies and corrupted data White blamed for the outages before the transition began. But that costs time and money. The prospect of a regulator-imposed fine costing even more delivers the cost/benefit formula customers (and Frontier, apparently) needs to assure customer protection.

Regulators need to start scrutinizing these consolidation transactions much more carefully, and reject those from companies that have a significant record of failing their customers. Frontier’s disastrous transition in West Virginia in 2010 led to months of news coverage and a number of very serious outages. More than five years later, service complaints are still coming in, mostly focused on poor broadband service. In Connecticut, Frontier had to cough up costly service credits and promotions to stop a flood of customers headed for the exits over Frontier’s messy transition from AT&T. Suspiciously familiar problems including service outages, billing issues, and missed service calls plagued Connecticut in 2015 just as they do in 2016 in Texas, Florida, and California.

We warned regulators in each instance that Frontier’s repeated poor performance should give them pause. We recommended regulators either impose extra requirements as part of any approval agreement or reject these types of deals outright. They chose to believe Frontier instead. So while Frontier executives and shareholders enjoy the proceeds of enhanced revenue and their regular dividend payouts, customers that depend on Frontier, especially small businesses, are in trouble. Dagwoods Pizza Parlor in Santa Monica is just one example.

Dagwoods manager Mark Peters said Frontier’s lousy performance in Southern California “has the potential to destroy small businesses” like his. This past Memorial Day weekend was a partial bust for Dagwoods because their Frontier-supplied phone and Internet service was down again until Frontier finally showed up to fix it.

“It’s a bad situation,” Peters told the Santa Monica Observer. “We can’t take orders, and this is our big night of the week. We’re really bummed out about the whole situation.”

The time for excuses and explanations has come and gone. The time for action, fines, and automatic service credits is overdue, but better late than never.

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WTVT in Tampa reports Florida Attorney General Pam Bondi is now taking a hard look at Frontier’s performance in the state. (2:41)

Frontier is the dominant phone company in West Virginia.

Ann Sheridan and Michael Sheridan are probably not related, but they share one thing in common: lousy DSL broadband.

Michael Sheridan, who lives in Lewisburg, W.V., is the lead plaintiff in a dragged-out class action lawsuit against Frontier Communications in the state, alleging the phone company has engaged in marketing flim-flam promising lightning fast DSL Internet speeds many customers complain they just do not receive. Ann Sheridan is a university lecturer in Ireland who doesn’t enjoy her DSL service as much as she endures it, when it works.

They live thousands of miles apart, but the problems are largely the same: for-profit phone companies trying to get as much revenue out of copper-based networks suitable for 20th century landlines while spending as little possible on broadband-friendly upgrades.

The phone company that dominates West Virginia has done all it can to have the lawsuit thrown out of court, claiming its terms and conditions mandate dissatisfied customers seek arbitration instead of a class action case. Frontier claims it inserted that condition into its terms and conditions a few years ago. Sheridan and his attorneys are now before the West Virginia Supreme Court of Appeals defending the case.

Crete is an island and part of the territory of Greece.

Despite Frontier’s insistence it sells contract-free Internet with no tricks or traps, Sheridan argues Frontier traps customers with unilateral fine print.

“Cases from all over the country establish that a simple notation on a website cannot form an agreement to arbitrate, a line item at the tail end of a bill that does not even state the specifics of the agreement cannot form an agreement to arbitrate, and a bill stuffer purporting to unilaterally amend an existing contractual relationship does not form an agreement to arbitrate,” the respondent’s brief states.

Many West Virginians with Frontier DSL complain they never exceed 5Mbps in speed, even though they are buying plans that advertise double that.

“Frontier’s practice of overcharging and simultaneously failing to provide the high-speed, broadband level of service it advertises has created high profits for Frontier but left West Virginia Internet users in the digital dark age,” according to the brief.

County Kildare, Ireland

Life isn’t much better for those driving 30 minutes outside of Dublin, where broadband can be charitably described as “rustic.” In fact, Sheridan claims there is better broadband in the back-end of Crete than what the average resident in suburban and rural Ireland can manage to get out of questionable copper wiring.

In one notorious incident Sheridan described as “stereotypically Irish,” broadband service was brought to its knees for a good part of County Kildare for over a week earlier this year after a group of retaliatory cows upset over the Irish winter worked their way through a broken fence and collectively took out their frustration on a transformer they knocked over, taking out Internet access in the process.

Just having broadband service available doesn’t solve the digital divide if that service becomes oversold and unreliable. Both Sheridans argue broadband connections often deteriorate as more customers sign up. Without corresponding capacity upgrades to keep up with sales, speeds slow and service can become troublesome.

Broadband nemesis

Patrick Donnelly, a farmer and builder from Calverstown reports Internet speeds 20 years ago were faster than what he gets today from his DSL service.

“Currently, I think I’m on my fourth provider. There’s all these little start-ups and generally they’re not too bad when you sign up originally,” Donnelly reports from his farm in Ireland. ‘But as soon as an ISP signs up more customers, speeds seem to get slower and slower. During peak usage times, it can become unusable.’

In West Virginia, some customers believe if their Internet speeds are poor, they need to buy an upgraded, faster speed tier from Frontier to compensate. That is usually a waste of money if the existing network is either inadequate or overburdened with customer traffic. But many customers don’t realize this. Often, fine print in a company’s terms and conditions disclaims the very bold and prominent speed claims that most customers actually see. Sheridan argues Frontier’s fine print goes even further by limiting their customers’ recourse when advertising claims do not meet reality.

“Frontier’s position is that consumers are obliged to be on alert at all times – diligently reviewing the fine print on each and every page of promotional material received – for the possibility that they may be waiving their rights by doing nothing at all,” the brief states.

Sheridan admits her point she’d move to Crete to get better broadband would be funny if the implications were not so serious.

“Not having broadband is a bit like not having electricity or only having it intermittently,” Sheridan said.

“It’s not a luxury any more, this is a necessity,” Donnelly said in agreement. “We’re 20 years behind now it’s time we caught up.”

All signs are pointing to a relative cake walk for Charter Communications’ executives this afternoon as they seek final approval from the California Public Utilities Commission to acquire Time Warner Cable systems in the state, with the help of an Administrative Law Judge that is recommending approval with a minimum of conditions.

In fact, the strongest condition Charter may have to accept in California came by accident. As part of Charter’s lobbying effort, it proposed a set of voluntary conditions it was prepared to accept, claiming to regulators these conditions would represent benefits of approving the transaction. One of those was a temporary three-year commitment to abide by the FCC’s Open Internet Order, which among other things bans paid prioritization (Internet fast lanes), intentionally blocking lawful Internet content, and speed throttling your Internet connection.

Somewhere along the way, someone forgot to include the language that sunsets (or ends) Charter’s voluntary commitment after three years.

Without it, Charter will have to abide by the terms of the FCC’s Open Internet Order forever.

Soon after recognizing the change in language, Charter’s lawyers appealed to the CPUC to correct what it called a “drafting error.”

“[New Charter does] not seek modification of the second sentence, which matches their voluntary commitments, but believe[s] that the three-year limitation in the second sentence was intended to— and should—apply to the first sentence as well,” Charter’s lawyers argued two weeks ago.

In other words, the Administrative Law Judge’s apparent attempt to ‘cut and paste’ Charter’s own press release-like voluntary deal commitments into his personal recommendation went horribly wrong. Charter’s lawyers prefer to call it an “intent to track” the company’s voluntary commitments. Either way, Charter’s lawyers all call the new language unfair.

“Holding New Charter indefinitely to FCC rules even after the FCC’s rules are invalidated or modified, and irrespective of future market conditions or the practices or rules governing New Charter’s competitors, would be a highly unconventional requirement,” the lawyers complained.

That provides valuable insight into how “New Charter” is likely to feel about Net Neutrality three years from now. Charter’s lawyers argue it would be unfair to hold them to “invalidated” rules — the same ones the company itself has voluntarily embraced as a condition of approval, but only for now.

Remarkably, in the final revision of the Administrative Law Judge’s recommendations to the CPUC recommending approval, the language that is keeping Charter’s lawyers up at night is still there:

New Charter shall fully comply with all the terms and conditions of the Federal Communications Commission’s Open Internet Order, regardless of the outcome of any legal challenge to the Open Internet Order. In addition, for a period of not less than three years from the closing of the Transaction, New Charter (a) will not adopt fees for users to use specific third-party Internet applications; (b) will not engage in zero-rating; (c) will not engage in usage-based billing; (d) will not impose data caps; and (e) will submit any Internet interconnection disputes not resolvable by good faith negotiations on a case-by-case basis.

Charter’s new service area, including Time Warner Cable and Bright House customers.

If it remains intact through the vote expected this afternoon, New Charter will have to permanently abide by the FCC’s Open Internet Order, with no end date. That condition will apply in California, and because of most-favored state status, also in New York.

Stop the Cap!’s recommendations to the CPUC are also in the same document, although our views were not shared by the judge:

Stop the Cap! objects to [New Charter’s] 3-year moratorium on data caps and usage based pricing for broadband services. It argues that such bans should be made permanent or, if not permanent, should last at least 7 years in parallel with the lifespan of the conditions imposed in the FCC’s approval of the parent company merger. In addition, Stop the Cap! objects to what it asserts will be a major price increase for existing Time Warner customers when Charter’s pricing plans replace Time Warner’s pricing plans.

More broadly, Stop the Cap! president Phillip Dampier called the revised recommendations to approve the deal underwhelming and disappointing.

“By window-dressing what is essentially Charter’s own voluntary offer to the CPUC, the commission is continuing to miss a golden opportunity to win deal conditions that will meaningfully benefit Californian consumers that will otherwise get little more than higher cable and broadband bills,” Dampier told Communications Daily. “Virtually everything Charter is promising customers is already available or soon will be from Time Warner Cable, often for less money. Time Warner Cable committed to offering its customers 300Mbps speeds, no usage caps or usage billing, and all-digital service through its Maxx upgrade program, expected to be complete by the end of 2017 or 2018. The CPUC is proposing to allow New Charter to wait until 2019 to provide 300Mbps service and potentially cap Internet service three years after that, four years less than what the FCC is demanding.”

Among the conditions Charter will be expected to fulfill in return for approval of its merger in California:

• Within a year of the closing of the merger deal, New Charter must boost broadband download speeds for customers on their all-digital platform to at least 60Mbps, an upgrade that is largely already complete.
• Within 30 months, New Charter must upgrade all households in its California service territory to an all-digital platform with download speeds of not less than 60Mbps, an upgrade that has already been underway for a few years.
• By Dec. 31, 2019, New Charter shall offer broadband Internet service with speeds of at least 300Mbps download to all households with current broadband availability from New Charter in its California network. Time Warner Cable essentially promised to do the same by early 2018, with many of its customers already getting up to 300Mbps in Southern California.
• While Charter talks about a bright future for the Time Warner customers joining its family, the company has not done a great job maintaining and upgrading its own cable systems in parts of California. Many smaller communities still only receive analog cable TV from Charter, with no broadband option at all. Therefore, the CPUC is giving New Charter three years to deploy 70,000 new broadband “passings” to current analog-only cable service areas in Kern, Kings, Modoc, Monterey, San Bernardino and Tulare counties. But the CPUC is giving New Charter a break, only requiring them to offer up to 100Mbps service in these communities.
• Time Warner Cable and Bright House customers in California will be able to keep their current broadband service plans for up to three years. Customers will also be allowed to buy their own cable modems and set-top boxes, but there is no requirement New Charter compensate customers who do with a service discount.
• Within six months of the deal closing, New Charter must offer Lifeline phone discounts within its service territory in California.
• New Charter must print and distribute brochures explaining the need for backup power to keep phone service working if electricity is interrupted. Those brochures must be available in multiple languages including, but not limited to, English, Spanish, Chinese and Vietnamese, as well as in accessible formats for visually impaired customers.

The CPUC is also expected to adopt Charter’s own voluntary commitments not to impose usage caps, usage billing, modem fees, and other customer-unfriendly practices for three years, a point that drew strong criticism from Stop the Cap! and the California Office of Ratepayer Advocates for being inadequate.

Both groups proposed that bans on data caps and usage billing should stay in place “until there is effective competition in Southern California, or no shorter than seven years after the decision is issued, whichever is later.”

ORA’s program supervisor Ana Maria Johnson believes the proposed changes don’t go far enough to “mitigate the harms that the merger will likely cause, especially in Southern California.”

Dampier was surprised how little the CPUC seemed to be asking of New Charter, especially in comparison to regulators in New York.

“The New York Public Service Commission did a more thorough job protecting consumers by insisting on faster and better upgrades, including readiness for gigabit service, and the same level of broadband service for all of New Charter’s customers in New York,” Dampier argued. “It also demanded and won meaningful expansion in rural broadband, low-cost Internet access, protection of New York jobs, and improved customer service. It is remarkable to us the CPUC did not insist on at least as much for California.”

The CPUC is expected to take a final vote on the merger deal this afternoon, starting at 12:30pm ET/9:30am PT and will be webcast. It is the 20th item on the agenda.